This article was originally featured in Tech in Asia
As a startup, it’s easy to gloss over Hong Kong if you don’t fit in fintech, IoT or education, Hong Kong’s reputed top startup industries.
But in 2015, within the lifestyle, logistics and ecommerce industries – all very much related sectors – Hong Kong startups gained 14 investments worth over $40 million. One startup experiencing the knock-on effects of these types of investments in Hong Kong is ecommerce fashion brand, Grana.
Luke Grana had the entrepreneurial itch long before he started Grana, opening a coffee bar in Sydney at the age of 21. After building his coffee chain business from ground up and learning from the experience, he sold the business in 2008.
He then started ChargePoint, one of Australia’s first electric vehicle charge point networks. His time at ChargePoint taught him the value of timing; in 2008, electric vehicles were only used by starry-eyed early adopters with a penchant for the environment. After ChargePoint, Luke started looking for greener pastures.
Ecommerce was something he thought of tackling for a long time. “Even in the beginning as a customer,” he said, “I thought fashion was an inefficient business model. Someone needed to come in and do it differently.”
During a holiday while visiting his brother in Peru, he discovered Peruvian Pima Cotton. After bringing samples back to his family and friends, who loved its unique quality and feel, Luke started Grana with the idea of only selling Peruvian pima cotton t-shirts.
Realizing that there was much more potential in the material than just manufacturing t-shirts, Luke decided that a rich fabric lineage could become a brand story and mark for an apparel company, where each material used has a different back story. Chinese Silk, Mongolian Cashmere, Irish Linen, Japanese Denim, French Poplin, Italian Merino Wool and Italian Microfibre are now a part of growing list of fabrics from around the world that Grana sources for its clothing.
Grana’s co-founder and COO Pieter Paul Wittgen was Grana’s first investor, and came on board after meeting Luke and understanding the simplicity of Luke’s vision.
Pieter said, “a lot of startups are trying to introduce a new technology, app or software that doesn’t exist yet — our goal is to create a better product at a better price. It’s a simple model that is focused on execution. Meeting Luke and seeing his ability to execute was a huge vote of confidence for me. It was a good match also for me as well, coming from a corporate finance background where I saw the value in Luke’s experienced entrepreneurial background.”
Luke and Pieter went through the beta launch together in March 2014, where they sold 2,000 t-shirts in just the first 3 weeks. This proved to them that their business model could work. Since then, according to them, Grana has been growing at 25 percent every month.
Their team is currently 30 strong, ships to 12 countries, offers 60 styles with over 2000 SKUs, and with fitting rooms and popup stores in Hong Kong, Sydney and San Francisco.
How Grana is using its strategic location in Hong Kong to its advantage
Luke knew he had a knowledge gap when it came to the fashion industry, but wanted Grana to be a global industry player from the very beginning. He demonstrated his commitment to this by shipping to eight countries right out of the gate.
Luke explained, “the key numbers we were looking to capture were the global apparel industry figure, which totals about $2 trillion (as of 2014). We were also looking to shift our business online. Currently, total industry online sales is only at 5 percent, but is forecasted to reach 30 percent by 2030, so that’s what we really want to be a part of.”
Better shipping rates
After much research, he settled on Hong Kong as the best place for him to set up shop. Luke said, “I wanted to find out where to set up a global distribution center. I learned Hong Kong is a free tax port, world sourcing city, the world’s largest air cargo hub and one of the busiest places in the world where much of the shipping goes out to countries all over the globe directly. I realized if I shipped from Hong Kong, I could get better rates than shipping from places like the US or Australia.”
Pieter added, “Hong Kong is a perfect place for us to start, because a lot of the regional HQs for logistic companies like DHL and UPS are all based in HK. The volume that comes through and leaves HK is enormous, meaning (we get) really good rates. We get better rates from Hong Kong than we would from San Francisco to New York. It’s not the typical ecommerce go to place, but we feel it’s been a big advantage.”
Team to leverage data to lower costs
Data and technology are incredibly important to Grana, where the value chain and logistics efficiency are important in staying competitive. Pieter elaborated, “Since day one, we’ve been collecting data. The big guys like Amazon have the capital, but started offline first. Our data all syncs through the cloud and we’re building a team and using solutions that can best use that data to help lower our costs.”
Leveraging Hong Kong’s homegrown solutions
Grana is also leveraging Hong Kong’s own homegrown solutions, such as Aftership, a Hong Kong based shipping tracking application. “Aftership is a great tracking tool we use for our customers to improve our customer experience. Using Aftership, our customers receive a message right away to help them track orders every step of the way.”
Finding funding for ecommerce in Hong Kong
Luke said, “Generally the is scene growing in HK, and VCs are popping up. It reminds me of Sydney’s type of growth – it’s still growing, Singapore is definitely much more advanced, more VCs, more startups. But it’s been really exciting in the last two years in Hong Kong, in terms of coworking spaces, startups, events, meetups – it’s an exciting time.”
“(Grana’s) been really lucky to raise capital, but there’s definitely a lot of growth opportunities here, through avenues like family offices. We closed the funding, opened our office then recruited the founding team: Anthony Hill, our Head of Design and Daniel Tse, our Head of Tech who designed our first website.
In terms of our overall industry, a lot of startups are doing well, like Warby Parker, Everlane and Bonobos. We have a simple business model that offers quality clothing at affordable prices. We’re not trying to create a new market or new best app like other brands, which may seem less risky. But our strong value proposition has been really well received.”
Grana’s founders on building an ecommerce brand online
Pieter notes there are really two major things most ecommerce operations like theirs need to get right: linking the offline and mobile components of the business with the online space.
When they started out, they were very focused on building the brand in the online space. They then realized that customers still needed to check the size and fit, feel the fabric quality, and they needed temporary popups to bring the Grana brand to life.
“We started by renting out two stores in Hong Kong,” he said. “The brand really came to life in our stores, where we had blue balloons, music, lemonade, a ping pong table… it was very organic and natural. That triggered something – we realized it was a good way to also introduce the brand.”
They then had a popup store in Sydney in a shipping container, and converted that into a popup on Manly, Circular Quay and Bondi Beach. Many of the people that experienced that initial brand experience then started buying from them online.
“For us, we never wanted to get into stores.” he said, “It was about getting the first thousand customers in, and when they were comfortable, they’d start talking about the brand and then comfortable moving to a more online experience.”
Pieter explains that mobile is the next milestone for Grana in terms of getting their brand right.
“40 percent of our visitors come from mobile. Conversion is relatively lower, but we really want to think mobile first. Instagram, Facebook… everyone is mobile first, no one is sitting behind their desktops anymore and placing orders, everyone is on the go. We need to make sure whatever touchpoint you get first, you can convert. Telling a brand story on mobile is tougher, so we really need to get it right.”
Luke adds that influencer marketing and blogger collaborations also help them get the word out there. “We also built Grana Friends, a community of key customers who share about Grana and provide a lot of feedback and help determine the colours and styling. Pieter and I are not from the fashion world, where a designer usually sets the color and prices. We do small batches and then get the feedback from customers. It’s just using the lean startup methodology if you really think about it.”
What’s next for Grana?
On March 4, Grana secured an additional $3.5 million dollars in funding from investors, bringing their total funding to $6 million. Grana’s lead investor for the round was Golden Gate Ventures, along with investments from MindWorks Ventures and Bluebell Group.
Luke explains that the next step is for Grana to cover more countries and the entire range of modern essential wear.
“On the product side, we’re expanding our current range with new seasonal colours, and upcoming product categories such as swimwear. We’re also excited to expand our team in the US as our business continues to grow.”
Luke believes that quality clothing should be available to all, and is what they stand for at Grana. He also believes that industry innovation and improved transparency between brands and consumers is the way forward with ecommerce and retail brands. This is especially so with fast fashion, where consumers want to know the story behind their apparel.
“More brands should jump on board to take the right steps to change current practices around the world.”